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January 29, 2003


The opinion of the court was delivered by: Frederick J. Scullin, Jr., Chief United States District Judge



Plaintiffs commenced the instant putative class action in New York State Supreme Court, Ulster County, alleging (1) violations of New York General Business Law § 349 (two counts), (2) breach of contract (two counts), (3) fraud and fraudulent misrepresentation, and (4) negligence and negligent supervision.*fn1 On September 18, 2002, Defendants removed the action to this Court pursuant to 15 U.S.C. § 78bb(f)(2). Presently before the Court is Plaintiffs' motion to remand the action to state court and Defendants' cross-motion to dismiss.


Plaintiff Robert Gray ("Gray") is the beneficial owner of Plaintiff XRGX Corporation ("XRGX"), a New York corporation (collectively, "Plaintiffs"). Plaintiffs bring the instant action as representatives of two putative classes of similarly situated individuals. Defendant Seaboard Securities, Inc. ("Seaboard") is a "full service" brokerage firm that provides services including investment research, investment advice, and execution of trades. Defendant Deutsche Bank Alex. Brown, Inc. ("Alex. Brown")*fn2 is also a "full service" brokerage firm affiliated with Seaboard for the purpose of providing proprietary investment research and advice. Defendant Vincent Danna ("Danna") was the investment adviser whom Seaboard assigned to Plaintiffs' accounts.

The gravamen of Plaintiffs' complaint is that Seaboard misrepresented the nature of its affiliation with Alex. Brown to Plaintiffs' detriment. Plaintiffs assert two sets of "class allegations" in support of their various causes of action. The first class ("Class I") consists of "those persons to whom, since January 28, 1998, defendants have represented that they were and are providing investment advice based on research and recommendations from Alex. Brown to cause such persons to pay `full service' brokerage firm commissions." See Complaint at ¶ 11. Class I was allegedly damaged to the extent that the individual class members paid elevated commission fees for services that they did not receive, i.e., proprietary investment research and advice from Alex. Brown. See id. at ¶ 12. The second class ("Class II") is a subset of Class I that Seaboard and Danna allegedly caused to invest in certain securities by falsely indicating that Alex. Brown recommended the investments. See id. at ¶ 13.*fn3


A. Standard

1. Motion to Remand

"A removing party bears the burden of establishing that the case falls within the Court's removal jurisdiction." Korsinsky v. Salomon Smith Barney Inc., No. 01 Civ. 6085, 2002 WL 27775, *2 (S.D.N.Y. Jan. 10, 2002) (citing Crazy Eddie, Inc. v. Cotter, 666 F. Supp. 503, 508 (S.D.N.Y. 1987)). "`It is settled that the removal statutes are to be strictly construed against removal and all doubts should be resolved in favor of remand.'" Id. (citations omitted).*fn4

2. Motion to Dismiss

Defendants' motion to dismiss does not identify a provision of the Federal Rules of Civil Procedure under which they seek dismissal. As explained more fully below, Defendants seek dismissal on the ground that Plaintiffs' state law causes of action are entirely preempted by the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), Pub.L. 105-353, 112 Stat. 3227 (1998) (codified at 15 U.S.C. § 77p, 78bb(f)). The Court will therefore treat Defendants' motion as a motion to dismiss for failure to state a claim upon which relief can be granted. See MDCM Holdings, Inc. v. Credit Suisse First Boston Corp., 216 F. Supp.2d 251, 252-53 (S.D.N.Y. 2002) (evaluating motion to dismiss based on SLUSA preemption under Rule 12(b)(6) standard); cf. Rocco v. New York State Teamsters Conference Pension & Ret. Fund, 281 F.3d 62, 72 (2d Cir. 2002) ("[D]ismissal of claims under ERISA's preemption provision, . . ., is to be considered a `dismissal under Rule 12(b)(6) for failure to state a claim, not for lack of jurisdiction.'") (quoting Jiras, 170 F.3d at 165 (citation omitted)).

A court may not dismiss an action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure "`unless it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him or her to relief.'" Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (quoting Sweet v. Sheahan, 235 F.3d 80, 83 (2d Cir. 2000)). In making this determination, the court must "constru[e] the complaint liberally, accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor." Id. (citing Gregory v. Daly, 243 F.3d 687, 691 (2d Cir. 2001)).

B. Applicability of SLUSA to the Instant Action

The gravamen of Defendants' motion to dismiss is that SLUSA preempts Plaintiffs' claims. As an initial matter, however, Plaintiffs maintain that SLUSA is not retroactive to conduct that occurred before its enactment in 1998 and that SLUSA is therefore entirely inapplicable to this case.*fn5 Defendants contend that the question is not whether the conduct complained of predated SLUSA but whether the action was filed after SLUSA's effective date. "A statute does not apply `retrospectively' merely because it is applied in a case arising from conduct antedating the statute's enactment, . . ., or upsets expectations based in prior law." Landgraf v. USI Film Prods., 511 U.S. 244, 269 (1994) (internal citations and footnote omitted). For example, where a new rule of procedure goes into effect after a cause of action accrues, but prior to the filing of a lawsuit that is based on pre-enactment conduct, there is generally no ...

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